With the latest buyout spree raising concerns that another crash in stocks is around the corner, technology stocks are some of the most vulnerable considering valuations. Although some asset managers, notably David Tepper, are making the case for going long stocks by stating “don’t fight the Fed…now you’ve got four Feds,” this strategy is not without risks. On the other hand, you have the actual Federal Reserve Chair Janet Yellen highlighting yesterday in prepared remarks that “equity valuations at this point are generally quite high” before taking it one step further by lamenting “there are potential dangers there.”
Microsoft (MSFT) is a name with recognition around the globe. Almost everyone who has used a personal computer at one point has used either the company’s operating system or program suite. Their development, sales, and support for a range of software products makes them an integral piece of the global technology sector. Nevertheless, their status as a global technology leader will not prevent a sizeable correction to valuations should monetary policy meet its limit or investors fear the bubble in stocks beginning to burst, reminding investors of the experience in the early 2000s.
Earnings Beat Adds to Price Momentum
Despite the optimism surrounding Microsoft stock, shares are trading slightly negative year-to-date. The company, which is a component of the Dow Jones Industrial Average, trades on the NASDAQ (QQQ) with many other technology stocks. Shares are trading just 7.50% off of 52-week highs and not far from all-time highs reached in December of 1999 (just before the last technology bubble burst). Earnings themselves have remained strong in a difficult environment for the industry as evidenced by the announcement on April 23rd in which earnings printed at $0.62, beating estimates of $0.51. The earnings announcement gave investors a sigh of relief after the company declared a dividend of $0.31 per share.
